An ongoing debate every employer needs to be on top of.

How to work it out: employee or contractor

To check if your worker is an employee or contractor, you need to review the whole working arrangement. Read on ….

On 9 February 2022, the High Court handed down decisions in CFMMEU v Personnel Contracting [2022] HCA 1 and ZG Operations v Jamsek [2022] HCA 2, which impact ATO advice and guidance in relation to classifying workers.

We are currently considering these decisions and the impact they will have in relation to the worker classification risk, and we have published a decision impact statement.

Draft public advice and guidance products were published for consultation on the ATO legal database on 15 December 2022, with the consultation period open until 16 February 2023.

Information to help you determine whether your worker is an employee or contractor is available at employee or contractor.

To check if your worker is an employee or contractor, you need to review the whole working arrangement.

On this page

Classifying your worker

The High Court judgments clarify that the totality of the relationship between a worker and an employer consists of the legal rights and obligations arising from the contract between the parties.

You are responsible for classifying your worker for tax and super purposes and you need to get it right. If you make an incorrect decision, you may face penalties.

If you are engaging a worker who you believe is a contractor, you can choose to pay them super to ensure you are not liable for the superannuation guarantee charge (SGC). You will need to pay any super contributions directly to their chosen superannuation fund and should include this in your contract with the worker.

Superannuation obligations still may apply to certain contractors

In certain circumstances you must pay superannuation for contractors who are deemed to be employees for superannuation purposes.

These circumstances include the following.

If the worker works under a contract that is wholly or principally for their labour.
If the worker performs work that is wholly or principally of a domestic nature for more than 30 hours per week.
A sportsperson, artist or entertainer paid to perform, present or participate in any music, play, dance, entertainment, sport, display or promotional activity, or similar activity.
A person paid to provide services in connection with any performance, presentation or participation in these activities.
A person paid to perform services related to the making of a film, tape, disc, television or radio broadcast.

Some workers are always employees

The following workers are always treated as employees:

apprentices
trainees
labourers
trades assistants.

Apprentices and trainees do both work and recognised training to get a qualification, certificate or diploma. They can be full-time, part-time or school-based and usually have a formal training agreement with the business they work for. This is registered through a state or territory training authority or completed under a relevant law.

In most cases they are paid under an award and receive specific pay and conditions. You must meet the same tax and super obligations as you do for any other employees.

Companies, trusts and partnerships are always contractors

An employee must be a person. If you've hired a company, trust or partnership to do the work, this is a contracting relationship for tax and super purposes. The people who do the work may be directors, partners or employees of the contractor but they're not your employees.

Labour hire or on-hire arrangements

If you hired your worker through a labour hire or on-hire firm and pay that firm for the work undertaken in your business, your business has a contract with the labour hire firm. They are responsible for pay as you go (PAYG) withholding, super and fringe benefits tax obligations. Labour hire firms may be called different names, including recruitment services or group training organisations. They will refer to your business as the 'host employer'.

Hiring individuals

If you've hired an individual, the details within the working agreement or contract determine if they are a contractor or employee for tax and super purposes. The agreement or contract can be written or verbal.

NB: Read the 33 page white paper where the ATO sets out the differences in even greater detail.

Source: ATO